Fitch: Expansionary budget to support Saudi growth

Updated 03 January 2013
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Fitch: Expansionary budget to support Saudi growth

Fitch Ratings says an expansionary 2013 budget based on a conservative oil price will support another year of healthy economic growth for Saudi Arabia and a further strengthening of the sovereign's net creditor position. However, overall growth will slow due to a decline in oil production that was already evident in recent months.
The FY13 budget unveiled on Dec. 29 projects record spending of $ 219 billion (34 percent of GDP), up by almost 20 percent on the 2012 budget. Budgeted capital spending is 28 percent higher than in 2012, though the government has struggled to achieve its capital spending targets in recent years. Education and health care remain the focus of spending, accounting for 37 percent of the total. Defense and security tends to be the largest single item, constituting around one-third, but is not disclosed in the budget.
Revenues are based on unstated oil price and production assumptions, with the former well below prevailing market prices. An 18 percent jump in revenues is projected. With no new revenue-raising measures announced and little scope for higher oil revenues , the revenue projection appears less cautious than usual. However, actual revenues generally substantially exceed budget revenues (by an average of 82 percent over the past five years) and should do so again in 2013.
A $ 2.4 billion (0.4 percent of GDP) surplus is budgeted for 2013.
Fitch expects a larger surplus, of 7.6 percent of GDP. The budget is consistent with an oil price (Brent) of around $ 60 per barrel and production of 9.7 million barrels per day, compared with Fitch's forecast of an average $ 100 per barrel for Brent.
Spending is also expected to surpass the budgeted level; actual spending has exceeded budget by an average of 24 percent over the past decade. With pension funds expected to post modest surpluses, the general government surplus is forecast at 8.3 percent of GDP.
Fiscal performance in 2012 was strong. The central government surplus rose to 14.2 percent of GDP, as greater oil production and high oil prices pushed total revenues to an all-time high. Spending growth slowed to 3 percent, the lowest since 2002, though this followed a significant one-off spending package in 2011. In absolute terms spending is up by 43 percent since 2009.
Central government gross debt fell to 3.6 percent of GDP at the end of 2012. With government deposits at the central bank rising in 2012 (data is available to end-October), Fitch estimates that the general government was a net creditor by 65 percent of GDP, compared with an “AA” median net debt position of 5 percent of GDP.
Although the fiscal position is exceptionally strong, it is heavily dependent on oil revenues (around 90 percent of total revenues) and the break-even oil price needed to balance revenues with actual spending has risen in recent years. Fitch projects that the break-even oil price will rise to $ 74 per barrel in 2013 (assuming oil production of 9.7 million bpd) up from $ 68 per barrel in 2012 and just over $ 40 per barrel in 2008.
The budget statement provided the first official estimate of full year economic data for 2012. Real GDP growth was 6.8 percent, down from a revised 8.5 percent in 2011. Although a breakdown was not available, it appears this moderation was due to slower growth in the oil sector.
Nonoil private sector growth was a robust 7.5 percent, lifting the five-year average to 5.7 percent.
Government spending has been the main impetus behind the strength of the private sector (construction was the fastest growing sector in 2012) and with policy remaining expansionary in 2013, further healthy private sector growth is anticipated. Bank lending and strong consumer and corporate confidence should also support the private sector.
Overall growth will slow, however, due to a decline in oil production that was already evident in recent months.


Power-sucking Bitcoin ‘mines’ spark backlash

Updated 14 min 16 sec ago
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Power-sucking Bitcoin ‘mines’ spark backlash

  • Local US authorities pushing back against bitcoin miners as power prices rise
  • Firms insist they bring revenue, investment and talent to mining locations

NEW YORK: Bitcoin “miners” who use rows of computers whirring at the same time to produce virtual currencies began taking root along New York’s northern border a couple of years ago to tap into some of the nation’s cheapest hydroelectric power, offering an air of Silicon Valley sophistication to this often-snowy region.
But as the once-high-flying bitcoin market has waned, so too has the enthusiasm for bitcoin miners. Mining operations with stacks of servers suck up so much electricity that they are in some cases causing power rates to spike for ordinary customers. And some officials question whether it’s all worth it for the relatively few jobs created.
“We don’t want someone coming in, taking our resources, not creating the jobs they professed to create and then disappear,” said Tim Currier, mayor of Massena, a village just south of the Canadian border, where bitcoin operator Coinmint recently announced plans to use the old aluminum plant site for a mining operation that would require 400 megawatts — roughly enough to power 300,000 homes at once.
In Plattsburgh, where two cryptocurrency operations have been blamed for spiking electricity rates, the prospect of more cryptocurrency miners plugging in spooked officials enough in March to enact an 18-month moratorium on new operations. The small border village of Rouses Point also is holding off on approving new server farms and Lake Placid is considering a moratorium.
For local officials, the power struggle has been a crash course in the esoteric bitcoin mining business in which miners earn bitcoins by making complex calculations that verify transactions on the digital currency’s public ledger.
Since it often uses hundreds of computers that throw off tremendous heat and burn a lot of power, it has tended to gravitate toward cooler places with cheap electricity, such as geothermal-rich Iceland or along the Columbia River region of Washington state.
The stretch of New York near the Canadian border similarly fits the bill. Cheap hydropower from a dam spanning the St. Lawrence River is doled out by a state authority to local businesses that promise to create jobs. Additionally, some municipalities such as Massena and Plattsburgh receive cheap electricity from a separate hydropower project near Niagara Falls.

 

In Plattsburgh, electricity is so cheap most residents use it instead of oil or wood to heat their homes. The couple of commercial cryptocurrency mines here can get an industrial rate of about 3 cents per kilowatt hour — less than half the national average.
But Plattsburgh Mayor Colin Read said its largest operator, Coinmint, which has two plants employing 20 or fewer people, can consume about 10 percent of Plattsburgh’s 104 megawatt cheap electricity quota. When the city exceeded its allocation like it did this winter, customers ended up paying $10 to $30 more a month for the extra electricity. For a major employer like Mold-Rite Plastics plant, it cost them at least $15,000 in February.
State regulators have since given municipal utilities the ability to charge higher rates to cryptocurrency miners. At least one bitcoin miner in Plattsburgh says he’s working with the city on solutions to the power worries.
Ryan Brienza, founder and CEO of the hosting company Zafra, said those could include mining on behalf of the city for an hour a day or harnessing the heat from mining computers to warm up large spaces.
While the direct number of jobs associated with mines can be small, Brienza said they can bring revenue, investments and talent to the city while employing local contractors.
“It can start snowballing,” Brienza said.
Coinmint’s plans for a new plant in Massena, for example, come with a promise of 150 jobs. That’s welcome in an area that in the past decade has suffered though the loss of aluminum-making jobs and the closure of a General Motors powertrain plant.
“J-O-Bs. Yup. What we need up here,” said Steve O’Shaughnessy, Massena town supervisor.
Coinmint had asked for a cheap power allocation from the New York Power Authority for Massena for part of its energy needs, but that request was deferred.
The power authority has separately enacted its own moratorium on allocating hydropower to cryptocurrency operations — mirroring municipalities that have effectively pushed the “pause” button on a rush of miners coming in.
Coinmint representatives said this month they hope to begin the Massena operation in the second part of this year. The company stressed that mines can be a good fit for this job-hungry area.
“They’re also going to get substantially more efficient over time,” said Coinmint spokesman Kyle Carlton. “So to the extent that Plattsburgh or Massena or anybody else can get in on that and establish themselves on the ground floor, I think that’s going to help those cities to be successful.”

Decoder

Bitcoin mining is the process used to verify transactions and add them to the currency's public ledger (blockchain). It involves compiling pending transactions and turning them into a computationally difficult, mathematical puzzle. The first computer to solve the puzzle claims a transaction fee and a newly-released bitcoin.